Creating

STARTING A BUSINESS 13
Introduce standardized forms
In Kazakhstan 80% of new business applications get
rejected for flawed or insufficient paperwork. In El Salvador
more than 70% get rejected. In Senegal, 65%. The
solution is to introduce standardized forms. With these,
entrepreneurs do not get confused about which forms
to complete and where to submit them. Countries that
have introduced standardized forms have significantly
lower rejection rates: 8% in the United Kingdom, 11%
in Malaysia and 14% in Costa Rica. These can cover all
business forms: sole proprietorship, partnership, limited
liability or corporation. The applicant ticks the appropriate
box for business form and proceeds by completing
the relevant sections. Sample company bylaws can be
provided for convenience.
In 2004 the Slovak commercial register issued just
such standardized forms, making them available on its
website. If documents are found to be defective, companies
have 15 days to correct the errors and refile their
application without paying additional fees. Only about a
quarter of applications are returned for correction, and
those are approved within 2 weeks. Before, rejected applications
took up to 6 months to resolve in a civil court
procedure. Others are taking note: the Czech Republic
has amended its civil procedure code to allow standardized
forms. In 2006 the United Kingdom too will introduce
a standardized registration form.
Countries that introduce standardized forms save
their entrepreneurs time. In Jamaica one document—
the articles of incorporation—is now required to form
a company. It takes 22 fewer days to start a business. In
Serbia and Montenegro a company is incorporated by
registering the founding deed. The founders may further
describe their partnership in a separate contract
if they wish, but the contract need not be registered.
Thirty-six days are saved.
Eliminate annual renewal of licenses
Fifty-six countries require businesses to obtain licenses
as part of start-up. In half—nearly all in Africa and Latin
America—these business licenses must be renewed annually.
The main purpose in both regions seems to be
to shake down the business for money. The beneficiaries
differ. In Africa it is usually the ministry of industry. In
Latin America it is the municipality.
In Africa inspections often precede the renewal. In
Eritrea, Ghana, Malawi, Tanzania, Uganda and Zimbabwe
the inspector visits the premises of the business to
verify that it has not changed the nature of its activity.
“I always worry, as the inspector does not have to justify
the reason for rejection,” says Naomi, a baker in Lesotho.
Businesses often resort to bribes to obtain approval. In
Malawi the Ministry of Trade and Industry first verifies
whether the location and business use of premises are
consistent with the city code. Next, a notice of the license
renewal application is posted in the licensing authority’s
offices for 21 days. Anyone can contest the renewal.
This is not to say that businesses should not be
inspected or that licenses should not be withdrawn
if businesses have violated sanitary or other codes.
Indeed, the next chapter, on dealing with licenses, recommends
more focus on risk-based inspections. But
license renewal should not be an annual rite, and only
violators should pay fines.
Why reform?
If it is easy to set up a business, more businesses are set
up. Entrepreneurs registered nearly 1,500 more firms
in Serbia and Montenegro in the first half of 2005 than
in the first half of 2004—a 42% jump (figure 2.5).
This is not an aberration. Following reform, new entry
jumped by 28% in Vietnam, 22% in Romania and 16%
in Belgium.
There are other benefits. One is the associated increase
in investment. Analysis in one study suggests that
if Algeria brought its entry regulation to the level in Turkey,
it could boost business investment by up to 30%. 3
Other studies show that another benefit is new jobs. 4 In
Afghanistan the entry of new companies in 2004 brought
120,000 formal sector jobs.